The Credit Crunch has been in the news for over a year and many have not noticed anything except the news being reported. But for some it has been horrible and life changing. Houses bought on zero or little equity have turned into negative equity and being forced to sell in those conditions is locking that loss into reality.

Credit card debt has been the silent bane of many lives removing any hope of wealth, usually when it could do the most good. There are about five stages of any life, and after young families with their expanding social needs are very likely to quickly create a mountain of debt without realizing just how difficult it will be to reduce it. Years later, the seething remains still extract a portion of their pay-cheque and a greater portion of their youthful promise has been absorbed into a life of debt. Stages 3 and 4 of many lives are spent undoing what they enjoyed in Stage 2.

“Generation Y” seems the most adept at accumulating debt. The student loan culture experiment that “funds education” is nothing but an extended form of slavery. It is an intergenerational con. We will teach you kids if you sign your life away here, here and here. Now you work and pay it back! Political pressure keeps the interest on such loans minimalised until the student decides to strike out on their own, and then it is pretty similar to a mortgage.

Mobile phones are in the same league. How many 18 – 25 year olds spend more than they earn? How many run up huge bills on their mobiles?

But now, we have a whole new problem. The wild enthusiasm getting into debt now has to find a way of going the other way. We have had a credit crunch. Next we have a huge consequence. Will the debt not get repaid?

Defaulting on a huge scale leaves lives undone. Not just the lives of the defaulters. Their families and the people they do business with. Not to mention their bankers.

2009 could be a very rocky ride. Economic extinctions are the real threat. When sections of the economy cease to exist. These bail outs mean that the extinction is now a shared thing. It will affect a larger number by letting the economic cancer spread.

Economic Responsibility

The elephant in the room was ignored way past its fat carcass rotting in the corner. The consumption of average American is unmatched in history. The output of the average Chinese is unmatched in history. To compete in the big world, the Chinese made their products less expensive and held their currency very low and the Americans had ridiculous wealth. Over generations this leveraged American citizens into debt, at first by the liquidity arising from short term debt (credit cards) which returns lots of value as payment demands mount, so does liability ramp up. In other words, debtors are given reasons to pay them back (to US banks). So the secondary mortgage market and being able to work the system. By arbitrage on property sales, investors were being given a free and rapid rise. This lead to an increase in property investment vehicles and these in turn would lend on their “assets”, thus becoming, in effect, banks. The additional capital availability was then leveraged into bonds and futures and then derivatives. As the money served more and more future up now based upon this internal explosion of capitalisation. The consumers vs producer equation went seriously out of whack. Why do we consume so much? Maybe it is just risks taken are more when there is an excess of capital. The US excells at bigger and better, but sheer quantity is another type of strength.

The trick is to leverage both together. To understand how our different economies have evolved to serve our society and live with a relativity to one another. Competition is for rats. We humans can enjoy our path of life without having to win. Losing is now also quite a lot of fun.

Does this mean American consumption has been making China economically successful? What happens next as Americans can no longer afford to buy buy buy.

It seems almost fashionable to be fatalistic, and there seems a slight gasp when economic conditions are mentioned. Nobody seems to have a definite plan, but having a definite plan is the key to success when things are good. Why should it be any different now?

Normal things are not that easy, either. You always have to try hard, to make a go of things. Orderly thinking is good. Planning is good. Dusting off a few of those management skills that they used to talk about. But the question is, what is the world going to want as everything else, including imported goods descend in value. There may be a time when a car costs five hundred dollars and nobody can buy one.

Unlike Zimbabwe. As the rest of the world edges with depreciation, this land is being throttled with extraordinary inflation. It is being ruined by a leader ten times more dumb than W. He knows what to do. And by George they had better do what he says or he will have them shot. There simply are not that many humans, historically, who could cause so much misery as Mugabe has. Zimbabwe would be better off if a pile of shit ran it than the power mad imbecile, Robert Mugabe. It is time he gave it up.

George Bush is trying to do something similar to the world economy.